Canadian investors shouldn’t forget about Canada’s intriguing technology sector as the artificial intelligence (AI) rally continues to move forward. Undoubtedly, it’s hard not to hear about AI plans, regardless of which tech firm you’re hearing from! It’s certainly reminiscent of the rise of dot-com firms in the mid-1990s.
Though some may be worried about a 2000-style dot-com collapse, I’d argue that lofty valuations may be warranted, especially when it comes to the firms that actually can give their earnings growth profiles a huge shot in the arm. That’s not to say there aren’t isolated bubbles out there, especially in the realm of the semiconductor scene.
Personally, I think the tech scene still has value outside of the red-hot semiconductor scene. With Dr. Michael Burry betting against the broad batch of semiconductor plays, I’d argue that the downside risks are too extreme to be chasing the hottest of the hot plays in the AI chip space right now. Not all semiconductor plays may be in for a beatdown at some point in the future.
However, I think the odds of an AI semiconductor rollover are somewhat high, as Mr. Market tends to exaggerate his pricing to the upside after bull runs. On the flip side, he tends to overly discount stocks to the downside following crashes or bearish declines.
Either way, I believe Canada’s tech scene is worth checking out if you seek a good risk/reward scenario and a bit of underrated AI upside for the new year and beyond. Without further ado, let’s get into two TSX software stocks that I view as undervalued at this moment in time.
Lightspeed Commerce
First up, we have a “spicier” growth play in Lightspeed Commerce (TSX: LSPD), formerly Lightspeed POS, a commerce enabler with plenty of tech innovation going on behind the scenes. Tech stocks may have been on quite a run, but Lightspeed stock sat out the rally, with shares down around 20% over the past year alone. Over the past two years, shares are off nearly 50%. The recent drop brings LSPD down a grand total of around 88% from its peak hit all the way back in 2021.
Indeed, the $2.8 billion has taken a massive clobbering. And though the latest round of earnings results seemed to be salt in the wounds of an already ailing stock, I’d argue the post-quarter pullback is more of an opportunity for deep-value investors.
Analysts over at Truist are in the same boat. They recently said that the post-earnings decline was “materially overdone.” I couldn’t agree more. Lightspeed’s staying cautious in the face of macro uncertainty. I think they’re right to err on the side of caution with inflation and a potential recession on the way. All considered, LSPD stands out as a superb value in tech right now.
CGI
Up next, we have a stabler play for investors who are no fans of catching falling knives in the tech scene. CGI (TSX: GIB.A) stock has been surging of late, recently touching new highs around $155 per share.
Up 44% over the past two years, GIB.A shares have been a TSX beater. Still, I find the firm to be an intriguing value at just 22.2 times trailing price-to-earnings. Further, the recent partnership with LocalTapiola is intriguing as the team looks to take on digital transformation at the workplace.
All considered, CGI is a deep value play in the world of tech. As a nice bonus, the firm is also growing its stake in the AI game through various partnerships and organic innovation. I don’t think the stock reflects the growth potential of its AI talents just yet.
